COORDINATION OF AGRI-FOOD CHAIN WITH REVENUE-SHARING CONTRACT UNDER STOCHASTIC OUTPUT AND STOCHASTIC DEMAND

Xia Zhao () and Fangwei Wu
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Xia Zhao: Center for Food Security and Strategic Studies, Nanjing University of Finance and Economics, Nanjing 210003, China
Fangwei Wu: Institute of Finance and Economics, Shanghai University of Finance and Economics, Shanghai 200433, China

Asia-Pacific Journal of Operational Research (APJOR), 2011, vol. 28, issue 04, 487-510

Abstract: Due to the effects of uncertain factors such as seasonal weather and plant/animal diseases, the output of agricultural production is uncertain given certain agricultural inputs. This paper addresses the issue of coordinating agri-food chain with perishable goods by revenue-sharing (RS) contract when both output and demand are random. Following a RS contract, a supplier decides on agricultural input (e) and deliveries all goods with a price (ω) lower than unit production cost to the retailer while a retailer decides on the retail price (p) and return 1–Φ share (percentage) of its revenue to the supplier. For such a contract, the necessary condition of coordinating the chain is that the expected revenue function is concave. Under the channel coordination, the relationship between RS contract parameters ω and Φ as well as the range of Φ are given. For both output and demand random factor with uniform distribution, the concavity of the expected revenue function is presented. A numerical example illustrates the correctness of our analysis. The results of numerical example show that RS contract is able to coordinate the agri-food chain when the expected revenue function is concave. The results also show that the optimal decisions ofpandeare closely related to the demand price elasticity and the range of Φ is widened when the expected output increases.

Keywords: Agri-food chain; coordination; revenue-sharing contract; stochastic output; stochastic demand (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (9)

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DOI: 10.1142/S021759591100320X

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